Back in the days when we were young and dumb, Holly and I decided that it would be a good idea if we got into the rental property business. Not only were we insane enough to buy one single-family unit, we actually decided to purchase two of them.
Everybody thought we had lost our minds at the time, but we went ahead and listened to our own instincts anyway. We were looking for ways to build residual income streams, and rentals seemed like a great way to do it. Now, almost 10 years later, I think it is safe to say that our rental properties have been one of the best investments that we have made.
However, owning rental real estate isn’t a passive endeavor. Sometimes, rentals can be a lot of hard work. Just last weekend, I decided that I was going to head over to one of the houses and spend the morning doing some light yardwork. Since the houses we own are both about 35 minutes away from where we live, we don’t have a chance to drive by them every day to keep an eye on them. I was sure that there would be some weeds to pick in the landscaping, but what I saw when I arrived made my blood boil.
The landscaping didn’t just have some weeds, it was covered in them. All of the bushes and trees needed to be trimmed. I had a veritable forest of maple saplings growing out of the gutters. Needless to say, there was a lot more work to do than what I expected, which was irritating in itself. But what really got me upset was the fact that the renters were not only failing to keep up the property, they weren’t even trying. I was fuming, and for a few moments I was wondering why the heck we ever got into the rental game in the first place.
Why Our Rental Properties are a Good Investment
As I was scooping a sapling-filled layer of mud that was 3-inches thick from the gutters, I kept reminding myself that these rental properties are a good investment for us. Even though there are the inconveniences of dealing with renters and occasional repairs, I tried to focus on how buying these rentals has helped to set us up for financial success. Here is why:
Return on Investment
Sure, rental properties take an investment of both time and money. Yes, dealing with renters can be a total P.I.A. Yet, there is little doubt that we would have been able to make as much money as quickly as we did with any other investment. We put down a meager $10,000 on the mortgage for the purchase of one of our rentals. Additionally, we have spent about $5,000 in repairs since we bought it. The rent covers the mortgage each month, so we at least break even for every month that it is rented. Over a 15-year period, we will own a house that is worth about $100K, all paid-off by our renters. That is a profit of $75K, yo! Even if we had invested that $15K at an average return of 10% in the stock market, it would only be worth about $67K (before expenses) over that same time period. Although the cash isn’t as liquid as it would be in a financial instrument, we certainly come out ahead on this one.
One of the things that I love about owning real estate is that it is tangible. It isn’t just a number on a spreadsheet or a piece of paper in somebody’s wallet. It is real. It is something that will always have value because you can touch and feel it. Although everybody always talks about diversification with their investments in the markets, people seem to forget about diversifying their entire investment portfolio – which includes investing in things outside of the stock market. There are more ways to invest than just financial instruments, and real estate is one of my favorites. By spreading our investments around to include real estate, we feel like we are on a more solid footing to avoid major collapses across all markets.
The Long Game
Investing in real estate is not a short-term strategy. If you want to ensure that your rental properties a good investment, you have to develop a long game. Our rental properties are part of our long-term investment strategy. Once they are paid off, we will an additional source of income each month. We’ve created our own revenue stream. We can do a lot of things with this money. We can choose to reinvest it. We may use it to help pay for our children’s college expenses. Once we decide to retiree, we will definitely draw the rental income as a sort of self-made pension. The additional income gives us a ton of flexibility, and it only costs a little bit of effort.
When I’m elbow deep in gutter sludge, it can be hard to see that our rental properties are a good investment. Yeah, I grumbled. Yeah, I complained. Yes, I was ticked off. But, sometimes our long-term goals can only be supported with a little sweat equity. So, I put my head down, got out my gardening gloves, and went to work – not because I would benefit from it today. No. I did it because I want to provide my family with an even better future.